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What are Large Cap Funds?

What are Large Cap Funds?

Published on 15 December 2021 Views 4 Comments 0

1. Introduction:

Large-cap funds are safest when it comes to pure equity investing, easy to understand, less volatile to market swings and have predictable returns.Normally,Large cap funds have huge market capitalization.

2. Meaning of Large Cap Funds:

Large-cap funds are funds that invest at least 80% of their total assets in equity and equity-related instruments of Large-cap companies. Large-cap companies are the top 100 companies by market cap listed on the Indian stock exchange.

Examples of a few Large Cap FundsAditya Birla Sun Life Frontline Fund, ICICI Prudential Bluechip, SBI Blue Chip Fund, etc.

3. Pros & Cons of Large Cap Funds:

a. Pros of Large Cap Funds

  1. Safest Equity Funds: Large-cap funds are safer investment options as large-caps have the size and scale to weather the bad market phase and give stable returns
  2. Stable: Large-cap provides better stability in long-duration investment. Because large-cap funds are strong and trustworthy with having minimum risk.
  3. Easier to track: Since large-cap funds invest mostly in top companies which are most discussed and tracked companies in India, it is easier to evaluate and compare their performance
  4. Lower Expense ratio: The expense ratio of large-cap funds is mostly less than other types of Equity Mutual Funds
  5. Good dividends: Since large-cap companies are more mature, they tend to distribute their profits as dividends

b. Cons of Large Cap Funds

  1. Not Exceptional Returns: Major flipside is that their returns are more predictable and not exceptional like mid-cap/small-cap funds. As of 1st July 2018, the average 10 years returns of large-cap funds is around 11% whereas it is close to 16% for small and mid-caps.
  2. Higher Management Expenses: Some mutual fund charges higher management fee and exit load than other mutual funds.
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